Arms-length banks? Take them in hand!

Even the Liberals are calling for an interventionist role.

We need representation for workers and consumers as well as the government on the boards of these part-nationalised banks – not Sir Philip of Sainsbury’s!

From the FT:

The state’s £37bn stake in Britain’s part-nationalised banks will be held at arms-length with no direct boardroom representation, according to the two men charged with managing the investments.

In an article in Friday’s Financial Times, Sir Philip Hampton and John Kingman emphasise giving the banks commercial freedom to “protect and create value for the taxpayer”. They write: “We must operate on a commercial basis at arm’s length … our job [is] to manage the taxpayer’s investments, not to manage the banks.”

Their approach, spelled out for the first time, contradicts earlier statements by Alistair Darling, the chancellor, who last month said the taxpayer would have “appropriate representation” on the boards of Royal Bank of Scotland and a merged Lloyds TSB/HBOS, and the government would make the appointments. Neither now appears to be the case.

Sir Philip, chairman of J Sainsbury, and Mr Kingman, a senior Treasury official, insist that the government will “engage robustly” with the banks’ boards, warning it wants them to pay executives “fairly but not beyond fairly”.

But they stress: “We have not been asked to act as some sort of general regulator of the recapitalised banks in difficult times.”

The new non-executive directors that the government insisted were a condition of the partial nationalisation “will not … be our representatives and will not report directly to us,” they state.

This lack of direct representation on the boards will alarm MPs who believe the government should use its power as a shareholder to bring the banks to heel.

Vince Cable, Liberal Democrat Treasury spokesman, said the assurances extracted from the banks had proved “worthless” and called for the state to have an “enlarged and interventionist” role.

Clarification of the government’s arms-length role will also put further pressure on Barclays to explain why it rejected an injection of government capital in favour of raising £5.8bn from investors in the Middle East.

Barclays executives are expected to discuss the deal on Friday with leading investors some of whom have threatened to vote against the capital increase this month.

It emerged that RREV, the voting advisory service, had recommended that shareholders express their dissatisfaction with the deal by abstaining.

The government’s reassurances over its role are crucial for Lloyds TSB, HBOS and RBS, all of which are hoping to persuade existing shareholders to exercise their right to buy some of the new shares they are issuing to the Treasury.

If shareholders decide to “claw back” some of the shares, it would reduce the amount the taxpayer would have to invest.

Some large shareholders have been waiting for a clear indication of the influence the government intends to exercise over the banks before deciding whether to buy more shares.

All three banks are trading below the price at which the government has agreed to buy new shares. At Thursday night’s closing price, the government is in effect sitting on a £4.9bn paper loss.

Unless the shares recover, the government is likely to be left with all the shares, giving it a 60 per cent stake in RBS and 43 per cent of Lloyds and HBOS.


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